Ownership Structure and Firm Performance: Evidence from Taiwan

This paper examines the relationship between firm performance and ownership structure for listed and OTC manufacturing firms in Taiwan. By classifying ownership into three categories (managerial owners, institutional owners and the control group), the study addresses two related empirical issues—the commonly examined piecewise and the Granger causality relationships between ownership and performance. The empirical results show that except managerial ownership, there is a positive relationship between ownership and performance. Meanwhile, the piecewise relationship surfaces only for the control group, with the inflection points of 12.5% and 20%. The Granger causality test demonstrates a significant feedback relationship between institutional ownership and performance, consistent with the better expertise of institutional owners in monitoring and investment selection. Firm performance Granger-causes the ownership of the control group and is independent of managerial ownership. As auxiliary tests, this study provides a formal approach to search for inflection points and reconcile different firm performance measures.